Ballmer prepares for bitter battle

Microsoft Corp Chief Executive Officer Steve Ballmer is weighing a fight to oust Yahoo Inc's board and pave the way for a takeover, after the Internet company let his deadline pass without agreeing to a deal.

Ballmer gave Yahoo an ultimatum to accept a $44.6 billion bid by last weekend. Now he is left to decide whether to walk away or begin the company's first hostile takeover battle. If he fights, he has to consider if he should continue to hold firm on the price or offer a better deal to win over shareholders.

Microsoft, the world's biggest software maker, can't afford to let Yahoo go, said Sachin Shah, an analyst for ICAP Securities in Jersey City, New Jersey. To crack Google Inc's dominance of the Internet advertising market, Microsoft is looking to handle more Web searches, sell advertisements with more graphics and videos, and be able to target campaigns and track their success.

"Microsoft does need Yahoo," said Shah, a merger-arbitrage analyst. "If they didn't, they would have walked away a long time ago."

The company has spent billions creating a Web search engine and technology to sell ads, and buying Internet companies such as AQuantive Inc. Acquiring Yahoo would give it the No 2 spot in the $41 billion online ad market.

Losses at Redmond, Washington-based Microsoft's Internet business widened to $228 million last quarter, and sales rose to $843 million, at the low end of company forecasts. Google, owner of the most used Internet search engine, had $3.7 billion in revenue, excluding sales passed on to partner sites.

Advertising linked to search results accounts for more than half of Internet ad sales. Google handled six times more queries in the United States in March than Microsoft, according to ComScore Inc, a Reston, Virginia-based researcher.

"Microsoft is committed to completing the transaction and is unlikely to walk away from the deal," Citigroup analysts Brent Thill and Mark Mahaney in San Francisco wrote in a note to clients on Friday.

Microsoft fell 6.2 percent to $29.83 in NASDAQ Stock Market trading on Friday, a day after reporting sales of its Windows personal-computer software that fell short of analysts' estimates. The value of the bid, originally $31 in cash and stock, has dropped to $29.68.

Agencies

(China Daily 04/29/2008 page16)